Ladies and gentlemen thank youfor standing by, and welcome to the Black Hills Corp. Quarterly Earnings Call.At this time, all participants are in a listen-only mode. Later, we’ll conductthe question-and-answer session. Instructions will be given to you at thattime. (Operator Instructions). As a reminder, today's conference call is beingrecorded. I would now like to turn theconference over to Mr. Dale Jahr. Please go ahead.

Good morning everyone and I’dlike to add my welcome. Thank you for joining us. We are conducting thisconference call a little differently this morning. Mr. David Emery, ourChairman, President and CEO, will be joining us from Cheyenne, Wyomingwhere our Board of Directors held its quarterly meeting. Of course, Cheyenne is home to ourutility, Cheyenne Light, Fuel & Power. I am in our Rapid City headquarters, handling thelogistics of this call and other matters related to our earnings release ofyesterday. Our CFO, Mark Thies, could not join us in the call this morning. I remind the audience that thisconference call may include forward-looking statements as defined by the SEC.These statements concern our plans, expectations, and objectives for futureoperations. Such statements are based on what we believe are reasonableassumptions and based on current expectations of industry and economicconditions and other factors. However, risks and uncertainties could causeresults to differ materially from those in forward-looking statements. I referyou to the cautionary language published in our press release and other publicdisclosures. Again, this discussion will beled by Mr. David Emery, and Dave would like to start off with the review of therecent results before we open the call to you r questions. Dave?

Thank you Dale and I'll reiteratemy welcome to everybody. Thanks for being on the call today, we appreciate it. 2007 continues to be a good yearfor Black Hills Corporation. And in the third quarter, which we are here totalk about today, we posted some pretty good operating results in a quarterthat historically is the weaker quarter for us, primarily due to seasonality ofsome of the energy markets. We also, during this quarter, made significantprogress on some of our key strategic initiatives, and I'll talk about thatmore later. First, yesterday, our Boardapproved an increase in our quarterly dividend of $0.35 a share. That's up apenny, which would equate to a $1.40 in an annual dividend. 2007 represents the 37thconsecutive year dividend increases, and this will be the 38th year after we gothrough another year here with this penny increase. We typically do this dividendincrease after the results and in conjunction with our year-end results'disclosures. This year, as I think is a signof confidence in our confidence in the future, the Board accelerated theincrease to this quarter instead, which I think, bodes well for the future for Black Hills. Looking at third quarter results,the net income for the third quarter was $17.5 million or about $0.46 a shareversus $22.3 million or $0.66 a share last year. One thing I will note is thatwe did in February issue about 4.17 million shares, which was roughly an 11%dilution in our outstanding shares of stock. If you look at continuingoperations in the third quarter, the number was $17.6 million or $0.46 againcompared to 22.2% or $0.66 in 2006. If you look at the year-over-yearcomparison, there is a couple of one-time issues that impacted each year. Firstin 2007, couple of items and I'll talk about them both more a little later, butwe had a $1.9 million…

(Operator Instructions). And ourfirst question will come from the line of Neil Stein from [Latin Capital].Please go ahead.

Yes, hi, good morning.

Good morning, Neil, how are youtoday?

Good, thanks. Few questions,first, in your '08 guidance, could you say how much lower the trading andmarketing contribution is relative to '07 [off] quarter?

Yes, we had not specificallyidentified that, Neil, and I am sure you would like to know, that we have notspecifically identified that number.

Is it possible or you could saywhether, roughly what the percentage contribution is or range or maybe even sogenerally speaking about how you go about forecasting earnings from thatsegment, because it's very difficult to analyze the various moving parts andcome-up with a precise estimate.

Yeah. It's very difficult toforecast in general, and that's why we don't give the segment disclosuresbecause, as you know, that unit depends tremendously on gas price volatility,seasonal spreads for our storage, and basis differentials between Rockies andother parts of the county. And those are very, very difficult to forecast. Andso for that reason we don't give the specific disclosures there. And Iunderstand the frustration with that, but it is very, very difficult forecastfor us, as well as you. Sympathetic there but it is achallenge. Those are the three parts of our business and we have talked aboutthat a lot, related to our dependencies on, in addition to our producerservices, which is a fee-based business. And we depend on our storage, which isthe seasonal spreads and certainly just the overall volatility and gas pricesfor our proprietary trading and then, the basis differentials for ourtransport. And so, relatively speaking, it's hard to predict what those aregoing to do next year.

Moving on to the Aquila acquisition, from the various public filings wehave come up with a rate-based total of about $450 million to $500 million. Isit possible, if you could comment, are we in the right range there?

I don't specifically, off the topof my head, know what that number is Neil. I mean, I think you are in theballpark, but I would hate to say definitively. All of that information thoughis available and I know we have referred people before to Aquila'sFERC Form 1 on some of those properties.

Okay.

Previously about looking EBITDAnumbers and things related to those last year's FERC Form 1, but they'd giveyou real accurate information about us. I will not give you number that I amnot confident of, off the top of my head.

And, again, the purchase price isabout $950 million?

Yeah. The actual purchase priceitself is 940. And then, we'll have some other one-time fees and otherassociated costs.

Okay. How do you from evaluationperspective when you are looking at acquisitions like this, how do you justifypaying two times rate base? Or you know certain assets where you kind of knowwhat the return pro forma is going to be?

Essentially, it comes down tolooking at the value and what we think the value is, and what it can be underour ownership. We've talked about that before. But one of the benefits that wethink we bring to the transaction is a much different G&A cost structurethan what Aquila has. You know Aquila was quite a bit larger and has been contractingand selling utility assets. And as they've done so their G&A hasn't reducedproportionally. And so, if look at, at our situation its completely different,because we're buying assets only, we don't get any of the associated G&Afunctions or assets liabilities with our of the purchase. So we can built-upour G&A structure from scratch essentially on top of what we already have.But add on to that and specifically designed at to serve these additional fiveutilities, which allows us to really light size it right from the start. So that's where we see one of theadvantages and certainly, some of the advantages -- upside opportunity we seethere is, Aquila's Colorado Electric Propertydoes not have much of its own generation. They were out actively seekingrequest for proposals at the time the acquisition was announced. That processhas been put on hold to allow us to jointly look with Aquilaat some self build options that we might pursue there as well. So, those aresome of the rational behind the deal.

On the G&A savings, I couldsay whether that would that be good for customers, but what gives youconfidence, our shareholders would benefit?

Well, I think, we're prettycomfortable with the way that they would occur. Essentially, we'd be able toretain some of those benefits for shareholders. Certainly, customers willreceive some as well. So, truly going to be good for both shareholders and customersfrom our perspective, and that's just essentially bowed down to successfullynegotiating regulatory process, in order to make that happen. That's one of thethings we believe we're pretty good at as far as regulatory relationship andour ability to work on a deal. It's truly well in for shareholder andcustomers.

Okay. I'll let someone else askthe question. Thanks so much.

Thank you, Niel.

Thank you. (OperatorInstructions) We'll go to line of Gordon Howald from Caylon. Please go ahead.

Hi, guys.

Good morning, Gordon. How areyou?

Good morning. You talked aboutthe native load being higher here in the quarter, was this higher due to weatheror is this something that we need, kind of a recurring issue that we should bethinking about as we go through 2008 and beyond. I mean there is excesswholesale capacity just continuously getting degraded or is it justweather-related here?

Well, we've talked about a lotfor a long time that we have slow steady load growth in Black Hills Power, butits 1%, 2% a year number and it has been for years and its been very, verysteady. So there is some erosion of our excess low costs coal-fired generationto sell in the market. It's not a radical erosion but it's a slow steady oneand it's been going on since we built our last plant. The other one is -- this thirdquarter was particularly hot for us and so our native sales were up some 4%, Ibelieve in megawatt hour sales related to just our native loads. So, related tothat, you know, we had less offsystem sales, we also had increased purchasepower and fuel for peaking generation costs as well.

Got you. If I could have a one ortwo more you talked and Neil touched on this earlier trading margins coal wereup $5.7 million in the quarter that you mentioned some offsets mark-to-marketbeing about $0.9 million, compensation bad debt. Could you give us a littlemore granularity on what this offsets were, you only identified onespecifically and obviously some of the other ones appeared to be prettysignificant.

Yeah the only thing we've outpublically Gordon is just specifically what's in the press release as far asthe off system or the gross trading margin number and then the mark-to-marketthe others are related primarily when you have high current gross margins. Your compensation expense goesup, even though you have mark-to-market or something that offsets that tradingmargin from an actual net income perspective so your compensation expenses areregardless of the mark-to-market issue.

Yeah that makes some sense, andwhich of these cost are then recurring? I mean how should we think about therecurring nature of some of the offsets that make any sense?

Yes.

It's just a significant numberand that's why I am trying to dig in a little bit.

Right. Well I don't know if Icould add a whole lot of color to that, Gordon, frankly, at least not now, Ithink there will be a little bit more information in there when we put out our10-Q next week, but not a whole lot.

Okay and I'll look through thereand if I could just one more and I'll let other people ask. The rationale forthe IPP sales, I know you have talked about that in the past. So are youlooking at market conditions and that's prompting you to possibly sell orlooking to sell some of those assets, and is it really just to raise for theAquila acquisition, and lastly in I am sure you talked about this, what kind oftiming do you have on these asset sales or pertaining Aquila?

Yes, what we are doing obviouslyis conducting that review and what prompted the need to do the review on ourpart is obviously we are in a financing mode here with the Aquilatransaction but that in of itself really isn't the trigger. The trigger is wehave some great assets in some excellent locations, some of which may be morevaluable to others than to us long-term when market conditions are very, veryfavorable. So, it seemed like a good time for us if we were considering tryingto high grade our IPP portfolio if you will, now is a good time to look atdoing just that. So, we are out conducting thatprocess to try to value those assets and then make our strategic decisionsappropriately. Certainly, the timing is good relative to the Aquilatransaction, but that's not the primary driver.

That's probably agreed on.

And you know as far as the timingpart I didn't answer that of your question but we would anticipate the timingto be within the next couple of quarters we would work our ways through thatprocess and make decisions one way the other. And then not any different than atypical process like this takes, it takes several months to work your waythrough it. And we would anticipate every similar timeframe as far as reachingthe point where we would make a decision whatever that decision may be.

It sounds like a small strategicmove on your part. I appreciate it. Thanks guys.

Yes. Thanks Gordon.

Thank you. Our next question willcome from the line of [Ella Sansibar] from RBC Capital Markets. Please goahead.

Good morning.

Good morning.

I have a couple of questionsabout your oil and gas production you stated that you plan to slow productionto a rate of about 2% to 4% versus prior guidance of 4% to 6% for next year, isthere an estimated exit rate for fourth quarter?

Yes. We haven't disclosed that,no.

Okay. And also you cited asdrivers for that one of them being the pricing environment, if prices were toturn next year, would you be in a position or think about accelerating drillingto increase the growth rate back up to above 4% or 6%?

We've talked for quite a whileabout the amount of undeveloped reserves we have and even probable and possiblereserves and so we do have the ability to do that assuming we can get permitsand rigs and things like that. And if economic conditions warrant it probablymakes sense to do so. It's hard to make that decision without being sitting inthe circumstance where conditions may have been more aggressive. But we havethe properties in our existing inventory to do just that.

Okay.

There is, certainly if priceconditions warrant, we could react relatively quickly, assuming we have all thepermits we need and we are trying to stay ahead of the game on permits, so wecould do that. Now, a little bit of color back on your first question. Wehaven't put out an exit rate, but we have said that our '07 production will beat 2% to 4% growth rate as well. So you can at least infer an exit rate fromthose numbers.

Thank you very much.

You bet.

I also, a follow-up on that,wanted to understand the sum, if there is any impact to your E&P assets dueto the Rockies Express or Spectra's new proposed Bronco pipeline?

Anything that helps prices out ofthe Northern Rockies is a net positive for us.Now, a lot of our gas reserves that are producing today are in the San Juan Basin. But we do have a lot of propertyin the Rockies and our Piceance Basin properties that webought last year. You know, lots of those are undrilled proved undevelopedreserves. So the Piceance Basin and Powder River Basin and Montana properties,those would all be positively impacted by any pipeline project or anythingelse, frankly that would nail the basis differentials between Northern Rockies,and the NYMEX or mid-continent prices. It's hard to specifically statehow much they would be impacted, but it certainly is a net positive, anythingwe can do to reduce that basis differential because the Rockies prices arevery, very low, particularly, in the third quarter intraday spot prices wereunder a dollar in parts of Rockies, Southwest Wyomingand other places.

Okay. And finally, along thesesame lines, are there any plans to do a strategic review of your oil and gasassets?

Don't have any plans at thistime.

Great. I have no furtherquestions. Thank you.

Thank you.

(Operator Instructions) And ournext question, we have a follow-up Neil Stein from Latin Capital. Please goahead.

Thanks. You know, with respect tothe review of the generation business, do have any sort of point of view onwhether or not equity markets are properly valuing those assets relative towhat the private market might be one to pay?

I don’t know. I do have anopinion on that one Neil. I think that certainly, the people who follow us, Ibelieve looked pretty carefully at our IPT portfolio. And we disclose all ofour plans and contract provisions and things for those. So, I guess I don'thave any reason to believe that they are not fairly valued. Certainly, someplayers who were willing to put a lot of debt on some of those assets and justmore aggressive as far as overall general return criteria may value them higher

Got it

We have seen some of that in themarket and so that’s really what prompted the timing for the review is, if yougot these conditions combined with some of the other things we’ve going on,it’s probably a good time to take a look.

What’s your view on potential taxleakage from the sale and would there anyway to pursue some sort of [light] onexchange treatment in connection with the Aquilaacquisition.

We certainly haven’t looked realat what we have looked but we haven’t stated anything related to any taxleakage. They really depend on what if anything we decide to sell and win.We’re doing a lot of things related to construction and otherwise, so clearlypursuing strategies to minimize tax leakage is something that we would pursue.Now, how successful we would be in that, its hard to say until you knowspecifics of which assets you might sell and what the specific tax conditionsrelated to that asset are, so really difficult to say this time.

Okay. And thanks very much again.

Thank you.

And at this time, I am showing nofurther questions. Please continue.

All right. Well, thank youeveryone for attending the call today. Thanks for your interest in Black Hills. We’re very excited about what we have goingon. We’re very excited about the future with all of the construction we’vegoing on, growth in our existing business units as well as really lookingforward to the closing date of Aquila,hopefully, in the first quarter of 2008 and allow us to add those into ourcompany, and continue to pursue growth in those areas as well. So, thanks foryour attention. Thanks for your interest in Black Hills.Have a good day.

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